Oft-investigated GTECH may get Md. slots computer work

Subsidiary of Italian firm could run central operations

December 16, 2009|By Laura Smitherman | laura.smitherman@baltsun.com

Maryland officials are poised to approve a $21.5 million contract to set up the central operating system for the state's slot machine program to a company that has been accused of questionable practices in other states and countries and at one time was connected to a scandal here.

The Board of Public Works, a three-member panel that includes Gov. Martin O'Malley, plans to consider the contract with GTECH Corp. today. The five-year agreement, which could be extended another five years for $17.4 million, is considered vital to launching the slots program.

The company or its employees have faced allegations of bribery and taking kickbacks in cases that date to the 1990s. A background investigation conducted by Maryland lottery staff revealed that "some of GTECH's past actions remain under scrutiny, but it appears that no conclusions have been reached as to any alleged wrongdoing."

GTECH officials acknowledged various investigations and litigation by government authorities into "possible contract and regulatory issues." The lottery staff and members of the lottery commission, which reviewed the contract, concluded that GTECH shouldn't be disqualified.

According to an executive summary of the background investigation, the company "possesses the requisite good character, honesty and integrity to be approved" for a license to operate the computer system.

The document notes that Lottomatica Group, an Italian company and one of the world's largest lottery operators, acquired GTECH more than three years ago and implemented a "comprehensive overhaul of the corporate culture and compliance plan." Also, the document points out that several states, including Nevada, have licensed the company.

"GTECH steadfastly maintains that it has embarked on a course of conduct that is entirely different than its past one, and that it is now in strict compliance with all regulatory requirements," the document states.

GTECH has a long history in Maryland. The company, which has spent tens of thousands of dollars on lobbyists in Annapolis, became embroiled in a scandal in the 1990s after its lottery contract was extended without competitive bidding to accommodate the launch of Keno.

The huge expansion was so controversial it led to a federal investigation and, ultimately, the conviction of GTECH's former General Assembly lobbyist, Bruce C. Bereano, on mail fraud charges unrelated to the contract.

The company's reputation became tainted, and it was replaced by another vendor when its contract expired.

Prosecutors found no wrongdoing by the company. And even Leon G. Billings, the former Montgomery County state delegate who helped trigger the investigation of GTECH, said the company appears to provide quality products and services.

"The issue with GTECH has not been the quality of the service they provide but in some cases it's been how they got the contract and what kind of influence was exercised, but I haven't heard that in recent years," Billings said.

"I do know that their technology is sound," he said. "I think they've been fairly successful."

A former national sales director, J. David Smith, was convicted of fraud in 1996 and sentenced to prison in a kickback scheme in New Jersey. And the company's activities came under scrutiny in Brazil, where the government sued GTECH in 2004 to recover money paid in connection with contracts that were allegedly illegal because officials were bribed.

J. Kirby Fowler, chairman of the state lottery commission, said that many of the criminal investigations are "dated" and that a company as large as GTECH is "likely to have some litigation background." He said the commission evaluated the company's history and recognized that various parties are no longer associated with it.

Fowler said the commission hired Spectrum Gaming Group, a research and professional services firm, to conduct "a very thorough investigation."

Bruce L. Reeder, another lottery commission member, called GTECH "a fine company." He also said that he didn't remember any discussion about the company's legal problems, and that he was not concerned about its history.

"It didn't come up," Reeder said. "It was a competitive bid, and we looked at it from the standpoint of what's best for the Maryland Lottery. ... We looked at other states that are awarding contracts to them, and GTECH had a good name."

In Maryland, GTECH would provide a central computer system for the slots program at the lottery commission's headquarters as well as software and equipment needed to connect to all slot machines at each casino around the state.

Slots have been legalized at five locations by voter referendum in Maryland, and a proposed slots parlor in Cecil County is slated to open in October.

But several proposed projects at other locations have been stalled, including a casino near Arundel Mills mall that still must get county zoning approval and a Baltimore facility where developers have yet to pay licensing fees. A slots parlor at Ocean Downs racetrack has been postponed because of asbestos and structural problems, and the other location at Rocky Gap State Park didn't attract a qualified bid.

The request for proposals on the computer-system contract was issued in August. Two proposals were received as part of the sealed bidding, and GTECH was ranked first on technical and financial factors, according to state records. The contract is to be funded by slots proceeds.